5 Common Mistakes to Avoid While Investing In Mutual Funds

Mutual funds have become a popular investment choice for Indian investors. According to data released by the Association of Mutual Funds in India (AMFI), almost 9.15[1]lakh Systematic Investment Plan (SIP) accounts were added each month over the last fiscal of 2018-2019 and experts believe the numbers to grow further in the coming days.However, to gain from your mutual fund investments, here is a list of some of the more common mistakes that you should avoid while investing in mutual funds:

1. Investing without considering fund objective and financial goals Irrespective of the investment vehicle, every investment decision should be in accordance with your financial objectives. In mutual fund investment, it’s important to see that the objective of the fund matches your goal.For instance, if the goal is to build a higher education corpus for your child, you should opt for a fund that helps you garner the desired corpus within the stipulated time frame by being aggressive. The governing principle should be to select a fund with a tilt towards equities and see how well has it fared against its respective benchmark index.{2D743194-97C2-43F9-BC28-AEC370801ECD}
2. Holding NAV the yardstick for comparison Investors often end up comparing mutual funds basis the Net Asset Value (price of every unit). This principle is fundamentally incorrect.No matter what the NAV is, it cannot be one of the determinants of the overall fund’s performance – something that primarily depends on strategies adopted by the fund manager as well as the performance of its underlying assets.
3. Choosing a fund based on its short-term returns It’s advisable to choose funds for investments based on their long-term returns instead of short-term. This is because long-term returns reflect how the fund has performed across market cycles.As an investor, you should opt for a fund that has not only offered high returns when the market was up but has also contained losses when it tanked.
4. Stopping investment due to short-term volatility

Markets are volatile. Several internal and external factors contribute to this volatility which can remain for sometimes at a stretch. What’s essential however, is not to stop investment amidst volatility. Mutual fund investments give the desired result only when you remain invested for the long haul.There are several instances of investors making gains when they continued with their investments amid turmoil in the market. To keep volatility at bay, it’s prudent to opt for systematic investment plans or SIPs which spread risks over a period of time and averages out the cost of buying.While investing in mutual funds, you need to consider and understand a few more important things as they can have a severe impact on your returns on investment. And that are tax on mutual funds, exit load withdrawal of money and expense ratio.To make the most out of your mutual fund investments, stay away from these mistakes. Choose a fund that matches your financial objectives and start investing in mutual funds today.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.